China’s ‘1,000-year’ Project

China’s recently announced plan to create a new city 100 kilometers from Beijing has triggered both enthusiasm and concern among China’s investors and economists

By
NewsChina
Updated Jul.1

On April 1, China announced an ambitious plan to establish a “national new area” called “Xiongan” in a swathe of Hebei Province, which encircles Beijing, about 100 kilometers south of the capital. According to the plan, the Xiongan New Area will take over Beijing’s “non-capital functions” and will become “a demonstration area for innovative development.”

Spanning the three counties of Xiongxian, Rongcheng and Anxin in what is currently a largely agricultural region, the new area will start as a 100-square-kilometer zone, and in the long term will cover 2,000 sq km, almost 50 percent larger than Beijing’s urban area, said the announcement.

The announcement of such an ambitious plan immediately caused a stir in China’s stock markets, as the prices of several dozen companies that have investments in the proposed area increased by as much as 80 percent in seven business days, prompting the authorities to temporarily suspend the trading of 13 companies by April 15.

The response of the real estate market has been even more swift. Property prices in the affected area more than doubled in the hours after the announcement. Then in the following days, homebuyers flocked to the area in the hope of buying property to resell at a higher price in the future. Local authorities responded by suspending all property sales in the region.

Ambitious

Establishing special economic zones (SEZs) and new areas is nothing new in China. Besides some dozen special economic zones established in the 1980s that kickstarted China’s economic reforms, 18 “national new areas” have been set up since 1992.

But unlike all existing special zones and new areas, most of which were kicked off in a “trial and error” fashion, the Xiongan New Area was declared to have “strategic significance” from the very beginning. More importantly, it bears the hallmark of Chinese President Xi Jinping himself.

According to the announcement released by the Central Committee of the Communist Party of China and the State Council, the decision was made under the “explicit directive” of Xi, who has “ordered that a modern urban district should be built at a suitable location in Hebei, guided by new development concepts.”

Calling the decision a “major historic and strategic choice,” which will be “crucial for a millennium to come,” the announcement says that Xiongan will be developed into “a demonstration area for innovative growth.” According to the vision outlined by President Xi, Xiongan will be “green, modern, and with a beautiful environment, with high-end industries and efficient transportation.”

The announcement also puts the Xiongan New Area in parallel with Shenzhen Special Economic Zone along the Hong Kong border and Shanghai’s Pudong New Area, saying that Xiongan will become the third new zone that has “national significance.”

Among China’s dozens of special economic zones and new areas, Shenzhen and Shanghai have been the most successful and iconic ones. Established in 1980, the Shenzhen SEZ was part of the jumpstart to China’s economic reform, and turned a fishing village into a manufacturing and high-tech center. Likewise, the Pudong area in Shanghai, established in 1992, developed a wetland into China’s major financial center.

Uncertainties

While the ambitious plan has fueled the enthusiasm of financial and real estate speculators, it has led to bewilderment among many investors and analysts regarding what the project really means for China, and more particularly, for Beijing.

According to the official announcement, the Xiongan New Area will take over Beijing’s “non-capital functions,” and will facilitate the “coordinated development of the Beijing-Tianjin-Hebei region.” It means Xiongan will serve to address various “urban ills” of Beijing, including soaring house prices, overpopulation, traffic congestion, and, most notoriously, air pollution, by relocating Beijing’s industrial sectors to Xiongan, albeit in cleaner forms.

Some analysts have likened the future relationship between Beijing and Xiongan to that of Washington and New York, meaning that Beijing’s industry will be gradually relocated to Xiongan, leaving the capital to concentrate on being the administrative center of the country, while the administrative functions of Beijing itself are being relocated to the neighboring Tongzhou district development.

“Except for their headquarters, all enterprises ought to be relocated to Xiongan,” Liu Yong, an economist from the Development Research Centre of the State Council (DRCSC), told NewsChina. Liu said that the authorities are also considering various options to relocate a variety of organizations in Beijing to the new area, including major universities, hospitals, social service agencies and even some government agencies.

But according to Yang Kaizhong, an expert from Peking University and former deputy director of the municipal Development and Reform Commission of Beijing, who has been a major advocate for the Xiongan project, the vision for the new area’s future goes beyond simply taking over Beijing’s industrial sectors, and will take over some of Beijing’s role as administrative and cultural center as well. “Eventually, it will serve as China’s ‘supplementary capital,’” Yang told NewsChina.

Yang argued that with its location by the Baiyangdian Lake, one of the largest lakes in Northern China, the dense population in the surrounding area, and its relevant proximity to major transportation hubs such as the new Beijing airport that is now under construction south of Beijing (50km away) and Tianjin port (100km), Xiongan has the potential to develop into a major metropolis.

Government vs. Market

But despite the enthusiasm and optimism of state media and mainstream economists, some experts remain suspicious of the project.

While some who are questioning Xiongan’s “green city” prospects point to the fact that Hebei itself is one of the most polluted provinces in China, and that Baiyangdian Lake in the new area has been subject to industrial run-off and drought, others question the feasibility of the project as a whole, pointing to the meager success, if not failure, of similar (yet smaller-scale) projects previously launched to relocate Beijing’s industry, such as Tianjin���s Binhai New Area and Hebei’s coastal Caofeidian area.

But most of all, critics of the project argue that the project’s top-down planning and the massive government-led reallocation of resources runs counter to market rules.

In an article published by the Chinese-language edition of the Financial Times, Sheng Hong, Director of the Unirule Institute of Economics, a Beijing-based non-governmental think tank, argued Beijing’s “over-population” and its various “urban ills” result from excessive government intervention in resource distribution in favor of Beijing with its capital status.

Sheng said that given the central government’s heavy presence in resource distribution, it becomes essential for China’s powerful state-owned companies to have their headquarters stationed in Beijing. The result is that Beijing enjoys a disproportionately high tax revenue from these companies. In addition to other public facilities financed by the revenue of central government, Beijing has become a magnet that attracts capital and talent at the expense of other northern cities.

Sheng stressed that such a problem can only be solved by reducing the government’s role in the distribution of resources, not by arbitrarily creating the Xiongan New Area. Sheng further argued that it is unlikely that Xiongan will replicate the successes of Shenzhen and Shanghai’s Pudong New Area, as these are located on the Pearl River Delta and the Yangtze River Delta respectively, and are supported by vibrant economic and trading activities in nearby trade hubs: Hong Kong for Shenzhen, Shanghai for Pudong.

“Compared to Shanghai and Shenzhen, Xiongan is far away from a major trading hub, and lacks the fundamental driving force to attract both manufacturing and service industry,” said Sheng.

But advocates of the Xiongan project argue that Beijing’s “urban ills,” which are shared by other Chinese cities to lesser degrees, result from the lack of government regulation and urban planning. They argue the location of the Xiongan New Area, where there is minimal existing urban development, can ensure the maximization of the beneficial effects of urban planning.

In addition, supporters of the project argue that the scope of the Xiongan project goes beyond economics alone, and has important political and strategic significances, which cannot be addressed by the market alone.

Wu Hequan, an academician of the Chinese Academy of Engineering who serves as deputy head of a committee of expert consultants on Beijing-Tianjin-Hebei coordination, believes that besides solving Beijing’s urban problems, the Xiongan project also needs to explore an alternative development model.

Wu argued that with strong support from the central government, the development of Xiongan provides a chance to conduct institutional innovation and reforms, which would be impossible otherwise. For example, to relocate commercial enterprises and other organizations and to attract Beijing residents to move to Xiongan, would require some major reforms to the existing household registration system that ties social services to a certain locality and, up to now, each person to a locality. If such reforms prove to be successful in Xiongan, they could be replicated elsewhere and have major national significance.

Xiongan also affords the government a chance to explore a new path in managing the property market, which would be of major significance as soaring property prices have increasingly become a major source of public grievance in China’s larger cities. Wu suggested that China could adopt the model of Singapore, where the government directly manages much of the land and builds public and low-rent housing for those in need.

For Yang Kaizhong of Peking University, another major strategic consideration for the government in launching the Xiongan project is to foster the formulation of a “capital economic circle” to balance the development disparity between China’s more prosperous southern region where Shanghai and Shenzhen are located, and the less developed northern and inland region.

But both Wu and Yang admitted that the eventual success of the Xiongan project will depend on a balanced approach of government and market. “While there are things the government can achieve with its administrative power, more need to be achieved by the market,” said Wu.

While experts are still debating the project’s feasibility, efforts to push forward the scheme are underway. Following the establishment of a preparatory committee for the Xiongan project staffed by officials from Beijing, Tianjin and Hebei, the National Development and Reform Commission, China’s top economic planner, announced on April 13 that the commission is drafting the development plan for the first phase of construction in Xiongan and plans for protection of the environment around Baiyangdian Lake, which will be financed by the central government.

According to an estimate made by investment bank Morgan Stanley, the Xiongan project will require an investment of 2.4 trillion yuan (US$348 billion) over the next 10 to 20 years. Regardless of its eventual fate, the project will be a major focus for China watchers for years to come.

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